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  4. February 2024
  5. Social Connectedness and Information Markets

Social Connectedness and Information Markets

  • Rachel Kranton
  • David McAdams
American Economic Journal: Microeconomics
vol. 16, no. 1, February 2024
(pp. 33-62)
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Abstract

This paper investigates information quality in a simple model of socially connected information markets. Suppliers' payoffs derive from the fraction of consumers who see their stories. Consumers prefer to share and act only on high-quality information. Quality is endogenous and highest when social connectedness is neither too high nor too low. In highly connected markets, low-quality stories are widely seen, giving suppliers little incentive to invest in quality. Increasing the volume of misinformation and increasing consumers' costs of tuning in to suppliers' broadcasts can each increase equilibrium information quality.

Citation

Kranton, Rachel, and David McAdams. 2024. "Social Connectedness and Information Markets." American Economic Journal: Microeconomics, 16 (1): 33-62. DOI: 10.1257/mic.20220056

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D82 Asymmetric and Private Information; Mechanism Design
  • D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
  • L82 Entertainment; Media
  • Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
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